Archive for the ‘Regulatory Update’ Category


Appraisals for Higher-Priced Mortgage Loans

For higher-priced mortgage loans, or HPML’s, there are new rules on appraisals that will become effective on January 18, 2014.  HPML’s are loans that used to be referred to as subprime mortgage loans.

For higher-priced mortgage loans, full interior appraisals are required. This requirement expands consumer protections for HPML’s by adding new appraisal provisions to the Truth in Lending Act.

At the time of application, the borrower must be provided with an appraisal notice.  It must state the purpose of the appraisal and inform the borrower that they will receive a copy of the appraisal. The borrower will be charged for the appraisal, and can choose to have a separate appraisal performed at their expense.

As provided in Dodd-Frank, a creditor will only be permitted to make an HPML after the creditor obtains a written appraisal report, and the appraisal is performed by a licensed appraiser.  The appraiser must perform a physical property inspection including the interior of the property. The appraisal must be delivered at least 3 days before closing.


Some mortgages and loan types are exempt from the appraisal rules detailed below. Exemptions from these appraisal rules are:

1. Reverse mortgages

2. Loans for initial construction of a house

3. Loans with terms of 12 months or less

4. Loans on manufactured homes

5. Loans secured by a mobile home

Second Appraisals

A second appraisal, at the lender’s expense, will be required in connection with certain “flipped properties.” The three scenarios are (i) if the seller acquired the home within 180 days of the borrower’s contract of sale, and the borrower is paying 20% more than the seller’s purchase price or (ii) if the seller purchased it 91-180 days earlier and the borrower is paying 10% more than the seller’s purchase price, or (iii) in all cases if the seller purchased the property in the past 90 days.


Protect Your Most Valuable Possession – Your Home

The Consumer Financial Protection Bureau (CFPB), has issued new protections to help homeowners having trouble making mortgage payments or/who are seeking a loan modification. Below is an overview of some of these.

Better Communication and Information

Once a borrower misses two consecutive monthly mortgage payments, the loan servicer must include information about the defaults in the next monthly mortgage statement.

Also, a Loss Mitigation Notice must be sent to the borrower within 15 days of the second missed mortgage payment. The Notice has to include the following:

a. The date the borrower defaulted on the loan;

b. The amount required to bring the defaulted loan to current status; and

c. A list of the risks the borrower will face if they fail to bring the loan current

This Loss Mitigation Notice is in addition to the default information contained in the monthly statement the borrower will receive. Information about housing counselors and detailed options available to borrowers will be included with this Notice to help inform borrowers of steps they can take to avoid foreclosure.

Examples of these steps would be:

a. Deferring or forgiving principal on their loan

b. Lowering the interest rate

c. Increasing the length of the term

d. Entering into a different payment plan

More Time Prior to ForeclosureForclosure Protection

Mortgage servicers will now have to wait 120 days after a loan is in default before starting a foreclosure proceeding. This additional time will give borrowers a chance to submit an application for a mortgage modification or other workable solution.

Servicers cannot begin a foreclosure proceeding if an application is pending for a loan modification or other workout solution. They also cannot proceed with a sale if the borrower has entered into a loan modification agreement and is performing under the agreement.

These new protections not only provide borrowers with more options, but also place restrictions on the practice of “dual tracking”. Dual tracking occurs when the mortgage servicer is working with the borrower to restructure their obligations while at the same time commencing a foreclosure proceeding. Previously, borrowers who were working with their lenders or servicers were often surprised to find that their properties were up for foreclosure sale.

Modification Application Process

One of the changes made to the modification process is that only one application form will be permitted to be provided to borrowers. Instead of submitting multiple applications to protect from foreclosure, borrowers will only have to submit one application for all loan modification programs. This single application will require the servicer to list all available options for modifications and the borrower will need to be considered for all options at once.

As long as the modification application is received at least 45 days before a foreclosure sale is scheduled, the servicer must respond within 5 days to a borrower to confirm receipt of the application and to let them know whether the application is complete or incomplete. If incomplete, the servicer must tell the borrower what is needed to complete it.

Servicers will have only 30 days to respond to a modification application if it is received more than 37 days before a foreclosure sale is scheduled. A servicer must also evaluate a borrower’s application for a loan modification first so long as it was submitted at least 37 days before the foreclosure sale was scheduled. Servicers must offer a fair review process and must be familiar with the loan modification options that each of their investors will allow (i.e. Fannie Mae, Freddie Mac, FHA or private). This is to ensure that all alternatives to foreclosure be explored first. Servicers must evaluate a borrower for all loss mitigation options permitted by the investor for which a borrower qualifies, and cannot steer a borrower to a particular option that is most favorable to the servicer or the investor.

For a servicer to continue with a foreclosure sale, one of the following must happen:

1. The servicer had informed a borrower that they were not eligible for a loan modification;

2. The borrower had rejected all loan modification options offered to them by the servicer; or

3. The borrower had failed to comply with the terms of the loan modification agreement

Borrower’s Options Upon Rejection for Loan Modification

If a borrower is rejected for a loan modification, the mortgage servicer must provide specific reasons for the rejection. If there is a right to appeal, Borrower must be informed about their right to appeal the decision to an employee of the servicer who was not involved in the original decision.

All of these new protections should help more borrowers work out affordable solutions. They should also limit the number of borrowers who lose their homes in foreclosure.

The CFPB is Protecting Nobody By Standardizing Loan Officer Comp….And, Why Every Homeowner Should Care!

The Consumer Financial Protection Bureau is attempting to establish standards for what mortgage loan officers should be paid.  And, I don’t mean in a way that will protect consumers in any way, shape or form as their name implies. One example of this is a potential rule that would limit MLO compensation to a set dollar amount as opposed to a percentage of the loan amount.  This will mean that a loan officer would make the same $1,000, $2,000 or $5,000 on every loan regardless of the amount of the loan.

So, why should every homeowner care? Well, in addition to the fact that it should offend everybody who believes in capitalism and the free market, this will end up costing consumers significantly more money and result in rapidly declining service in the mortgage industry. Is that even possible you ask?  Well, yes it is, if all profit motives are eliminated. Because then most, if not all, small and mid-size brokers and bankers (along with EVERY talented mortgage originator of every stripe) will exit this business leaving consumers to grapple with the likes of the “Too Big Too Fail” guys.  And, if I am reading the papers correctly today, one of those “guys” lost $2 Billion in a very short time on some trades without batting an eyelash or being subject to any type of government condemnation. 

Leaving aside the “capitalism argument” since so long as it is not a mortgage originator who costs consumers money the government does not seem to care (nor do I) that other industries (properly) charge what the market will allow, we will move on to the second point about loan costs and service.  So, Pro Flowers is “safe” in charging me an extra $9.99 delivery charge for Mother’s Day delivery for the SAME SERVICE and SAME FLOWERS they always deliver.  However, if someone in the mortgage industry delivers excellent service, in a timely fashion and even if they save a borrower more money than anyone else could (or close a loan that nobody else could), we are apparently not worthy of charging any more for that service!  I am not asking that you to care about us either, but you should care about what the federal government is doing to the mortgage market specifically, the real estate market generally and the country financially overall.

So, what is going to happen IF the CFPB passes a regulation standardizing compensation?  In this case, it will be (i) tightening of credit when it needs to loosen up since there will now be more rules to follow; (ii) a further decimation of the smaller (and now even the mid to large) mortgage companies in favor of the 5 or so remaining large banks (iii) higher costs to the consumer for each loan as a result of additional requirements and the lenders continually growing fear of government oversight and (iv) worst of all, a “regressive” mortgage market where the smaller and less creditworthy borrowers will have both less access to credit and more costs in obtaining loans than the larger borrowers! 

Because, though it is often the same work to do a loan of $100,000 as it is to do one of $500,000 or more, at the same interest rate, a fee of 1-2% of a larger loan is still more money than it is on the smaller loan.  So, who will do those smaller loans? Nobody. That is, basically the same people who the CFPB is helping with these new potential rules.  Like it or not, the larger loans help subsidize the work on the smaller loans (as do smaller projects in other industries as well such as business cards for a printer).  So, without this “subsidy” the “smaller” borrower who can really use the help of a mortgage professional and benefits greatly from it, will find that it is either unavailable or unaffordable. 

 And, just in case there is anybody out there who has not “drank the Kool Aid,” I want to say this clearly…….The real estate market’s recovery and the original mortgage meltdown were never the result of MLOs being overpaid.   It may make people feel good to think that since if this was the case once you “fix” the compensation issues the real estate market will magically improve and we will all join hands and sing Kumbaya.  But, it is not the case nor was it ever.  It was a contributing factor for sure.  But, not the cause.  And, now, since Dodd Frank, Reg Z changes, the Safe Act, any problems that existed with it in any event (and many others that did not) have been addressed.   

I leave you with paraphrases of some verses from a poem written by a priest during WWII , “first they came for the gypsies, but nobody said anything; then they came for…..and nobody said anything AND then when they finally came for me, there was nobody left to speak up.”   That is where we are today in the United States where there is a war on small business.  This may be a dire warning but it is certainly a legitimate one.  Unless pressure is exerted on this country’s lawmakers, we will continue to suffer through an anemic recovery and many more laws which exact a toll in Unintended Consequences.

Why Expecting the Federal Government to Fix the Housing Problem is Unrealistic.

When NASA first started sending up astronauts, they quickly discovered that ballpoint pens would not work in zero gravity.  To combat the problem, NASA scientists spent a decade and $12 billion to develop a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass and at temperatures ranging from below freezing to 300 centigrade. The Russians used a pencil.

What is really wrong with mortgage lending or why is it so hard to close on a mortgage?

[Note, this Blog post is my answer today to an actual client’s email regarding a nearly 10 day delay on confirming the client’s identity.  In answering it, I detail the real problems in the mortgage industry.  The email trail (with identifying information removed) is attached below for context.]

Dear Borrower (“B”):

 The name of the lender is _______   Here is the Wikepedia link about them.  They are a huge financial institution headquartered in the Midwest with over $100B in deposits.  We have done many loans with them and once they close have not had any complaints from clients. 

 There should not be any problem with the closing or the documents.  There will be a bank attorney who attends who will go over all the documents with you.  He is someone we have selected and worked with many times.   I understand your frustration. But, it is endemic throughout the entire mortgage lending system right now and is not specific to this bank.  We have the same or worse issues with every lender we work with including, but not limited to [names of 3 of the largest banks in the country.].

 The origination system [in the US}is broken due to all the failures of the past few years and the federal government’s response to these failures.  The Federal government, and Congress specifically, has created a “solution which is looking for a problem” in attacking the origination end of the mortgage business.  They have done this because (i) it is the “lowest hanging fruit” with the least resistance, sympathy or money to defend and (ii) it is the “face” of the mortgage brokerage industry and what the public believes is the cause of the collapse (e.g. “my mortgage broker put me into a  loan that I could not afford”).  

 What they have not dealt with are (i) the real estate brokerage industry which promoted and, often “puffed” up prices for properties (especially new developments in the coastal areas ) without regard for a purchasers needs or ability to pay (ii) the securitization of the mortgages in the secondary market which (unkown to most people) is the driving force behind the mortgage industry where the loan products are created and where the profits dwarf those made by mortgage brokers and bankers and (iii) the need to stimulate the purchase market by making it (a) easier to obtain financing and (b) incentizing the banks to lend and the purchasers to borrow not the other way around . 

 As a result of all of the above, the banks are afraid of the federal regulators so they are engaged in an excessive amount of caution. They are also unsure of how to even deal with all these new rules and regulations which are increasing every day and not allowing the mortgage market to absorb the blows, heal and move on.   Think of a fighter who is knocked out and lying on the canvas.  He will not heal from his wounds if he is continually punched and kicked.  He must be allowed to get up, patch himself and regroup before fighting again. 

 Finally, banks are concerned about their buyback obligations to the investors in the secondary market in defaulted loans (which are still increasing due to the poor economy) where the real power and money is concentrated in the industry.  So, all of this results in a culture from the top down of overly cautious lending.   In addition, employees of these institutions either become paralyzed by fear or are unable or unwilling to use “common sense” to resolve issues.   They understand (and properly so) that nobody will get in trouble for “not” making a loan.  While they will have a big problem if they approve a loan or waive a condition that later is either re-purchased or is a cause for a government violation.  In this tight job market, nobody wants to risk their job by putting themselves”on the line” (like they would have in the past).  And, this is a perfectly rational decision!

 So, all that said, your exasperation is real but your outlet is not.  The banks are doing what they can do deal with the new lending environment.  They certainly could be doing better,  a lot better, but they are taking 100% of the blame for the failures in the mortgage market while bearing maybe 30% of the fault.   This is not to excuse them, just to give you a better understanding of the current environment.

 Let me know if you have any questions.

 Daniel M. Shlufman, FCMC Mortgage Corp.


From: Borrower (“B”)

Sent: Thursday, February 02, 2012 9:26 AM
To: Dan Shlufman
Subject: Re: your loan

 I am very concerned about professionalism of this lender. What is their legal name, address and state they operate in? What is its standing with state banking authorities? How is it rated?

 May I ask you to review all contractual documents that we are supposed to sign at closing to make sure there are no inconsistencies, deviation from standard agreements, like the one we currently have with ____ Bank, etc.  We do not want to be in position of discovering any surprises after closing.

 As experience teaches, the stupid hurt others before they hurt themselves.



On Feb 2, 2012, at 12:06 AM, the FCMC loan processor, LP (“LP”) wrote:

I have sent a request again to contact you directly tomorrow. Please let me know when they contact you and I will follow up with them.


On Feb 1, 2012 8:24 PM, B wrote:


This is ridiculous and the lender obviously wasn’t behaving professional. If they wanted to verify my identity why they called my wife, not me?  While calling my wife’s cell number they didn’t tell her this call was about the refinancing. Of course, my wife thought this is a sales call from another lender (like what already happened with Quicken Loan’s calls) who monitors our credit inquiries. So, she said she wasn’t interested, of course.

Have they call me directly and we will straighten things out. Thanks,

On Feb 1, 2012, at 6:51 PM, LP wrote:

> Borrower (“B”)
> J called you from the Bank today to verify your identity. Your wife told her you weren’t interested in a mortgage loan. She is going to call you back tomorrow. Can you please verify the information she needs to finish your loan? Thanks.
> Sincerely,
>FCMC Loan Processor (“LP”)
> >

HARP 2.0 Refinance Program Another Government Boondoggle Destined for Failure

On Monday, October 24th, to much fanfare, the Federal Housing Finance Agency announced that they were revising the Homeowners Affordable Refinance Program (a/k/a HARP).  In addition to lowering some of the costs of refinancing (which will certainly be appreciated and is helpful but is not an impediment to refinancing in most cases), the major revision was the lifting of the equity cap of 125% for “underwater” homeowners. Previously, HARP provided that a homeowner could refinance if they had up to 25% of negative equity (i.e. a 125% loan to value). 

Under HARP, which has been in effect for about 2 years, about 900,000 people have refinanced using the program. This is about 10% of the 9,000,000 people who have refinanced in the United States during that same time period. The federal government estimates that another 1,000,000 people will refinance under the new program commonly known as HARP 2.0.  I believe that at best this number will be less than half of their estimate (i.e. 500,000) and likely much less than that.  In addition, even if it is as many as 500,000, most of these people would have been eligible to refinance under HARP in any event but did not know about it or were not motivated to do so for any number of reasons.  Real estate prices nationwide have declined between 15 and 35% in most areas over the past 3 years. So, unless someone bought during the last year of the bubble and put down less than 5% (both combined representing a very small percentage of homeowners), they would have been able to refinance under HARP with the 125% loan to value allowance.  The reason they could not, other than in a very small percentage of cases, has nothing to do with the 125% loan to value.  It is the result of other factors that are detailed below and why this is destined for failure.

So why is this a boondoggle? (Note. boondoggle is defined by as “a project funded by the federal government out of political favoritism that is of no real value to the community or the nation”).  The short answer is because it does not address any of the 2 major shortcomings that made HARP of limited value to most homeowners who are  underwater. These are (i) subordinate loans (e.g. HELOCs) and (ii) homeowners who can no longer qualify for a loan due to changes in their credit scores, employment and/or income.  HARP 2.0 also does not address loans that are not being held by Fannie Mae or Freddie Mac. But, as this was never its intent, I will not comment on that in this post.

In addition to the 2 fundamental problems above, HARP 2.0 in touting the removal of limits on states hardest hit by the housing bust like Florida and Nevada fails to address a 3rd problem that is mostly unique to those 2 areas. These are the condominium requirements of Fannie Mae and Freddie Mac that still cannot be met.   Even if a homeowner can refinance under HARP 2.0 without regard to property values, without the removal of these requirements HARP 2.0 will be the epitome of a “paper tiger.”  Some of these condo requirements are that 50% of the units in the complex must be sold or in contract; that 70% of the units are currently owner occupied; that adequate reserves being maintained and that no litigation involving the condominium association exists.

Once again, under the theory that “doing something is better than doing nothing,”  the federal government is attempting to fix a problem that does not exist rather than the one that does.  Unless they find some way to provide incentives to (mostly) HELOC lenders so that these lenders will agree to subordinate their existing HELOC to a new HARP 2.0 loan, the program will be of little value to most homeowners.  These HELOCs were taken out by many homeowners at the time of purchase to either avoid PMI or reach combined LTVs of 95% or even 100% . They were also taken out after the purchase for renovations, other investments and recreation (e.g. vacations).

In addition, for homeowners who are current in their mortgage obligations, their existing loans should be modified without regard to their current credit, income or employment status.  Because as almost everyone who cannot refinance for any of the above reasons has said, quite logically, “if I am making my current mortgage payment I will certainly be able to make my new mortgage payment if the amount is lowered by several hundred dollars.”  They then go on to say  “since the bank already has my loan, why won’t they let me refinance where there is no additional risk and actually less of a risk if my payment is lowered?”   Good points, good questions and very logical.  However, until the federal government starts listening to those of us in the industry who have day-to-day interaction with homeowners and to the homeowners themselves as opposed to the economists and other “so called” experts, the only laws we will have are “the laws of unintended consequences.”

URGENT-Loan Amounts of $625,500-$729,250 Must Be Refinanced by September 30th for Best Pricing!

Since 2008, Fannie Mae and Freddie Mac have made loans available in amounts over the standard conforming (i.e. non-jumbo) lending loan limit of $417,000.  These loans, which are in amounts of $417,000-$729,250 are known as either High Balance Loans or Jumbo Conforming Loans.  These loans were  designed to fill part of the gap in the lower end of the Jumbo loan market that disappeared in 2008 with the collapse of the secondary  market. 

However, the original limits of these High Balance loans was only $625,500. There was a “temporary” 1 year increase of the loan limits to $729,250.  This temporary increase, which was extended year-by-year, is set to expire on September 30, 2011.  The conventional wisdom now is that the loan limits will not be increased again to $729,250.   Therefore, all loan amounts over $625,500 will be considered non-conforming or jumbo loans as of September 30th. This mostly affects 30 year, 15 year and 20 year fixed rate loans since many ARMs are portfolio products (i.e. not sold to Fannie or Freddie) and have consistent pricing up to $1M and sometimes higher.

As such, if anybody has a fixed rate loan in an amount of $625,500-$729,500 and was considering refinancing, you must do so immediately. And, by immediately, I mean this week or next week since the loan must close by September 30, 2011.    Wells Fargo has already announced that it will only honor registrations for this higher loan amount if they are in their system by the end of business on August 15, 2011.  There is a very small window of opportunity left to refinance these loans amounts, and I strongly suggest people take advantage of it before it closes!